Every year, analysts at Fitch Ratings take an in-depth look at the housing market in 22 countries. They use the data for two purposes. First, they attempt to explain why the housing market behaved as it did in the previous year and what the numbers indicate for the coming year. Where the UK is concerned, 2017 should favour home refinancing over new purchases.
Refinancing tends to be strongest when conditions are such that existing homeowners are discouraged from attempting to move up the property ladder. Under such conditions, purchases are stronger among first-time buyers capable of getting good mortgage deals. That is where we are right now. There is good reason to believe that refinancing will remain strong for the remainder of 2017.
Factors That Drive up Prices
In order for home refinancing to outpace purchases, certain conditions known to drive up prices must be present. All the conditions listed in the Fitch report are currently observed here. As you read the list below, do bear in mind that the highest price increases in 2016 were not noted in the UK. These were seen in Australia, New Zealand, and Canada.
- Low Borrowing Costs – Low-cost borrowing tends to invite more first-time buyers into the market. As the number of first-time buyers increases, so do housing prices.
- Available Credit – First-time buyers are further aided when credit is readily available. Though stronger MMR requirements have put additional strain on first-time buyers in the UK, they have not reduced credit availability.
- Limited Housing Supply – This is an ongoing problem in the UK. Nothing more need be said.
- Economic Growth – As long as economic growth is steady and consistent with borrowing costs and credit availability, housing prices go up. This is the simple principle of growth-related inflation. Prices rise commensurate with economy growth as long as buyers still have a means of borrowing.
The observance of all four conditions in the UK since 2012 explains why housing prices here have risen so dramatically. It also explains why prices in London and the South East have outpaced nearly every other market. Digging into the Fitch report more deeply, the data also explains why the UK housing market is starting to cool even though signs of correction have yet to occur in some other countries.
Our Correction Already Under Way
The Fitch report makes no bones about the fact that market corrections usually follow aggressive price increases. Such is the natural course of the housing market regardless of where it is analysed. Fitch notes that a natural correction is already under way here in the UK. It is not yet occurring in Australia, New Zealand, and Canada.
Corrections are instigated by a lowering of expectations about where prices will be in the future. In other words, housing experts understand that rapidly increasing prices cannot be sustained indefinitely. At some point in the future, prices will start to moderate. Anticipation of such moderation brings a natural correction.
Our emerging correction is a direct result of the uncertainty of Brexit negotiations. Both buyers and lenders are approaching the market with caution in the realisation that a hard exit could have significant economic repercussions. Price increases should continue to moderate or begin declining between now and the end of negotiations.
As you can see, conditions are perfect for home refinancing to expand faster than first-time purchases. We expect refinancing opportunities to be plentiful throughout 2017. It would also be no surprise to see banks get more aggressive in the competition for refinancing customers.
Mortgage Finance Gazette – http://www.mortgagefinancegazette.com/features/putting-uk-housing-market-global-context-03-04-2017/
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